At the moment, M&G (LSE:MNG) has the highest dividend yield in the entire FTSE 100. Sitting at 9.6%, it’s certainly an attractive yield for investors to consider. Yet it factors in the dividends paid over the past year. In effect, it looks to the past. When looking at the future, the dividend forecasts for coming years make it even more interesting.
How the dividend payments work
The global investment manager typically issues two dividends each year. The main one gets announced with the full-year results, that are released in March. The half-year results in August usually see a second smaller dividend payment recommended.
Over the past three years, the dividend has grown by 7.5%, which is encouraging. This ties in with strong business performance, witnessed also by the 61% jump in the share price over three years, even though in the past year, it has fallen by 7%.
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The yield of 9.6% is calculated from two dividend payments of 6.2p and 13.4p, totalling 19.6p and using the share price of 199p.
Forecasts for coming years
The 13.4p dividend was the one announced earlier this year in March. So the next one due would be in the summer, where the expectation is for 6.3p. This means that through to the end of 2023, the total dividend payments for the calendar year would tick slightly higher to 19.7p.
As for the dividend yield, it’s impossible to tell for sure, as it depends on share price movements. If I assume the same price of 199p, the yield would shift marginally higher to 9.9%.
For 2024, current dividend forecasts are for a 13.37p payment and a 6.5p payment, totalling 19.87p. If realised (again using the same share price), then the yield would be just under 10%.
Points to note beside the numbers
For investors, the prospect of buying a stock with a yield close to 10% for coming years is very appealing.
From a fundamental point of view, I feel M&G should be able to keep up with the dividend forecasts. In the latest full-year report, it highlighted strong client inflows in the Asset Management and Wealth space. Further, good capital generation and a new strategy to save on costs should help to boost the bottom line.
As a risk, the business did slump to an IFRS loss after tax of £1.6bn in 2022. It simply cannot afford to record those kind of losses in coming years and expect to pay out dividends. However, most of this hit was due to “non-cash losses in the fair value of surplus assets”.
Another non-business-specific risk is that when investors use the dividend forecasts, it should be noted that they’re just that — forecasts. Between now and next year, share price fluctuations and/or dividend per share changes could increase or decrease the yield.
Even with that being the case, the projection for the company looks attractive and definitely one for consideration.
